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It 1040ez 1. It 1040ez   Tax Withholding for 2014 Table of Contents Introduction Useful Items - You may want to see: Salaries and WagesDetermining Amount of Tax Withheld Using Form W-4 Completing Form W-4 and Worksheets Getting the Right Amount of Tax Withheld Rules Your Employer Must Follow Exemption From Withholding Supplemental Wages Penalties Tips Taxable Fringe BenefitsSpecial rule. It 1040ez Exceptions. It 1040ez Sick Pay Pensions and AnnuitiesPeriodic Payments Nonperiodic Payments Eligible Rollover Distributions Choosing Not To Have Income Tax Withheld Gambling WinningsException. It 1040ez Identical wagers. It 1040ez Unemployment Compensation Federal Payments Backup WithholdingTaxpayer identification number. It 1040ez Underreported interest or dividends. It 1040ez Introduction This chapter discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. It 1040ez This chapter explains in detail the rules for withholding tax from each of these types of income. It 1040ez The discussion of salaries and wages includes an explanation of how to complete Form W-4. It 1040ez This chapter also covers backup withholding on interest, dividends, and other payments. It 1040ez Useful Items - You may want to see: Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request See chapter 5 of this publication for information about getting these publications and forms. It 1040ez Salaries and Wages Income tax is withheld from the pay of most employees. It 1040ez Your pay includes your regular pay, bonuses, commissions, and vacation allowances. It 1040ez It also includes reimbursements and other expense allowances paid under a nonaccountable plan. It 1040ez See Supplemental Wages , later, for definitions of accountable and nonaccountable plans. It 1040ez If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. It 1040ez This is explained under Exemption From Withholding , later. It 1040ez You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. It 1040ez If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2. It 1040ez Military retirees. It 1040ez   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. It 1040ez Household workers. It 1040ez   If you are a household worker, you can ask your employer to withhold income tax from your pay. It 1040ez A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. It 1040ez   Tax is withheld only if you want it withheld and your employer agrees to withhold it. It 1040ez If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2. It 1040ez Farmworkers. It 1040ez   Generally, income tax is withheld from your cash wages for work on a farm unless your employer both: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. It 1040ez Differential wage payments. It 1040ez   When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. It 1040ez Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. It 1040ez The wages and withholding will be reported on Form W-2, Wage and Tax Statement. It 1040ez Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. It 1040ez The amount you earn in each payroll period. It 1040ez The information you give your employer on Form W-4. It 1040ez Form W-4 includes four types of information that your employer will use to figure your withholding. It 1040ez Whether to withhold at the single rate or at the lower married rate. It 1040ez How many withholding allowances you claim (each allowance reduces the amount withheld). It 1040ez Whether you want an additional amount withheld. It 1040ez Whether you are claiming an exemption from withholding in 2014. It 1040ez See Exemption From Withholding , later. It 1040ez Note. It 1040ez You must specify a filing status and a number of withholding allowances on Form W-4. It 1040ez You cannot specify only a dollar amount of withholding. It 1040ez New Job When you start a new job, you must fill out a Form W-4 and give it to your employer. It 1040ez Your employer should have copies of the form. It 1040ez If you need to change the information later, you must fill out a new form. It 1040ez If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. It 1040ez You may be able to avoid overwithholding if your employer agrees to use the part-year method. It 1040ez See Part-Year Method , later, for more information. It 1040ez Employee also receiving pension income. It 1040ez   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. It 1040ez However, you can choose to split your withholding allowances between your pension and job in any manner. It 1040ez Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. It 1040ez When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances. It 1040ez If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. It 1040ez See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) , later. It 1040ez Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. It 1040ez See Table 1-1 for examples of personal and financial changes you should consider. It 1040ez Table 1-1. It 1040ez Personal and Financial Changes Factor Examples Lifestyle change Marriage Divorce Birth or adoption of child Loss of an exemption Purchase of a new home Retirement Filing chapter 11 bankruptcy Wage income You or your spouse start or stop working, or start or stop a second job Change in the amount of taxable income not subject to withholding Interest income Dividends Capital gains Self-employment income IRA (including certain Roth  IRA) distributions Change in the amount of adjustments to income IRA deduction Student loan interest deduction Alimony expense Change in the amount of itemized deductions or tax credits Medical expenses Taxes Interest expense Gifts to charity Job expenses Dependent care expenses Education credit Child tax credit Earned income credit If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method , explained later. It 1040ez Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too much or too little. It 1040ez If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. It 1040ez You can get a blank Form W-4 from your employer or print the form from IRS. It 1040ez gov. It 1040ez You should try to have your withholding match your actual tax liability. It 1040ez If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. It 1040ez If too much tax is withheld, you will lose the use of that money until you get your refund. It 1040ez Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. It 1040ez See Table 1-1 for examples. It 1040ez Note. It 1040ez You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax. It 1040ez When Should You Check Your Withholding? The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld. It 1040ez You should check your withholding when any of the following situations occur. It 1040ez You receive a paycheck stub (statement) covering a full pay period in 2014, showing tax withheld based on 2014 tax rates. It 1040ez You prepare your 2013 tax return and get a: Big refund, or Balance due that is: More than you can comfortably pay, or Subject to a penalty. It 1040ez There are changes in your life or financial situation that affect your tax liability. It 1040ez See Table 1-1. It 1040ez There are changes in the tax law that affect your tax liability. It 1040ez How Do You Check Your Withholding? You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. It 1040ez You can also use the IRS Withholding calculator at www. It 1040ez irs. It 1040ez gov/individuals. It 1040ez If you use the worksheets and tables in this publication, follow these steps. It 1040ez Fill out Worksheet 1-5 to project your total federal income tax liability for 2014. It 1040ez Fill out Worksheet 1-7 to project your total federal withholding for 2014 and compare that with your projected tax liability from Worksheet 1-5. It 1040ez If you are not having enough tax withheld, line 6 of Worksheet 1-7 will show you how much more to have withheld each payday. It 1040ez For ways to increase the amount of tax withheld, see How Do You Increase Your Withholding? If line 5 of Worksheet 1-7 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, for ways to decrease the amount of tax you have withheld each payday. It 1040ez How Do You Increase Your Withholding? There are two ways to increase your withholding. It 1040ez You can: Decrease the number of allowances you claim on Form W-4, or Enter an additional amount that you want withheld from each paycheck on Form W-4. It 1040ez Requesting an additional amount withheld. It 1040ez   You can request that an additional amount be withheld from each paycheck by following these steps. It 1040ez Complete Worksheets 1-5 and 1-7. It 1040ez Complete a new Form W-4 if the amount on Worksheet 1-7, line 5: Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or Would cause you to pay a penalty when you file your tax return for 2014. It 1040ez Enter on your new Form W-4, the same number of withholding allowances your employer now uses for your withholding. It 1040ez This is the number of allowances you entered on the last Form W-4 you gave your employer. It 1040ez Enter on your new Form W-4, the amount from Worksheet 1-7, line 6. It 1040ez Give your newly completed Form W-4 to your employer. It 1040ez   If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year. It 1040ez Example. It 1040ez Early in 2014, Steve Miller used Worksheets 1-5, 1-6, and 1-7 to project his 2014 tax liability ($4,316) and his withholding for the year ($3,516). It 1040ez Steve's tax will be underwithheld by $800 ($4,316 − $3,516). It 1040ez His choices are to pay this amount when he files his 2014 tax return, make estimated tax payments, or increase his withholding now. It 1040ez Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2014. It 1040ez Steve completes the new Form W-4 as before, entering the same number of withholding allowances as before, but, in addition, entering $16 ($800 ÷ 50) on the form as the additional amount to be withheld from his pay each payday. It 1040ez He gives the completed form to his employer. It 1040ez What if I have more than one job or my spouse also has a job?   You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. It 1040ez If this is the case, you can increase your withholding for one or more of the jobs. It 1040ez   You can apply the amount on Worksheet 1-7, line 5, to only one job or divide it between the jobs any way you wish. It 1040ez For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2014 for that job. It 1040ez This will give you the additional amount to enter on the Form W-4 you will file for that job. It 1040ez You need to give your employer a new Form W-4 for each job for which you are changing your withholding. It 1040ez Example. It 1040ez Meg Green works in a store and earns $46,000 a year. It 1040ez Her husband, John, works full-time in manufacturing and earns $68,000 a year. It 1040ez In 2014, they will also have $184 in taxable interest and $1,000 of other taxable income. It 1040ez They expect to file a joint income tax return. It 1040ez Meg and John complete Worksheets 1-5, 1-6, and 1-7. It 1040ez Line 5 of Worksheet 1-7 shows that they will owe an additional $4,459 after subtracting their withholding for the year. It 1040ez They can divide the $4,459 any way they want. It 1040ez They can enter an additional amount on either of their Forms W-4, or divide it between them. It 1040ez They decide to have the additional amount withheld from John's wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on his Form W-4. It 1040ez Both claim the same number of allowances as before. It 1040ez How Do You Decrease Your Withholding? If your completed Worksheets 1-5 and 1-7 show that you may have more tax withheld than your projected tax liability for 2014, you may be able to decrease your withholding. It 1040ez There are two ways to do this. It 1040ez You can: Decrease any additional amount you are having withheld, or Increase the number of allowances you claim on Form W-4. It 1040ez You can claim only the number of allowances to which you are entitled. It 1040ez To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication. It 1040ez Increasing the number of allowances. It 1040ez   Figure and increase the number of withholding allowances you can claim as follows. It 1040ez On a new Form W-4, complete the Personal Allowances Worksheet. It 1040ez If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. It 1040ez If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later. It 1040ez If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet. It 1040ez If the number of allowances you can claim on Form W-4, is different from the number you already are claiming, give the newly completed Form W-4 to your employer. It 1040ez Converting Credits to Withholding Allowances Table 1-2 , later, shows many of the tax credits you may be able to use to decrease your withholding. It 1040ez The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit and the child tax credit. It 1040ez Complete Worksheet 1-8 to figure these credits more accurately and also take other credits into account. It 1040ez Include the amount from line 12 of Worksheet 1-8 in the total on line 5 of the Deductions and Adjustments Worksheet. It 1040ez Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4. It 1040ez If you take the child and dependent care credit into account on Worksheet 1-8, enter -0- on line F of the Personal Allowances Worksheet. It 1040ez If you take the child tax credit into account on Worksheet 1-8, enter -0- on line G of the Personal Allowances Worksheet. It 1040ez Example. It 1040ez Brett and Alyssa Davis are married and expect to file a joint return for 2014. It 1040ez Their expected taxable income from all sources is $68,000. It 1040ez They expect to have $15,900 of itemized deductions. It 1040ez Their projected tax credits include a child and dependent care credit of $960 and an adoption credit of $1,500. It 1040ez The Davis' complete Worksheet 1-8, as follows, to see whether they can convert their tax credits into additional withholding allowances. It 1040ez Line 1, expected child and dependent care credit—$960. It 1040ez Line 9, expected adoption credit—$1,500. It 1040ez Line 10, total estimated tax credits—$2,460. It 1040ez Line 11. It 1040ez Their combined total income from all sources, $68,000, falls between $42,001 and $98,000 on the table for married filing jointly or qualifying widow(er). It 1040ez The number to the right of this range is 6. It 1040ez 7. It 1040ez Line 12, multiply line 10 by line 11—$16,482. It 1040ez Then the Davis' complete the Form W-4 worksheets. It 1040ez Because they choose to account for their child and dependent care credit on the Deductions and Adjustments Worksheet, they enter -0- on line F of the Personal Allowances Worksheet and figure a new total for line H. It 1040ez They take the result on line 12 of Worksheet 1-8, add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet, and complete the Form W-4 worksheets. It 1040ez When Will Your New Form W-4 Go Into Effect? If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4. It 1040ez If the change is for next year, your new Form W-4 will not take effect until next year. It 1040ez Retirees Returning to the Workforce When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). It 1040ez However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. It 1040ez You completed either form based on your projected income at that time. It 1040ez Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income. It 1040ez The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. It 1040ez Start off with the Personal Allowances Worksheet. It 1040ez Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet. It 1040ez The third worksheet is the most important for this situation. It 1040ez Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. It 1040ez If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck. It 1040ez Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. It 1040ez It is your decision how to divide up your withholding allowances between these sources of income. It 1040ez For example, you may want to “take home” most of your weekly paycheck to use as spending money and use your monthly pension to “pay the bills. It 1040ez ” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4. It 1040ez There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances. It 1040ez Use the withholding tables in Publication 15 (Circular E), Employer's Tax Guide. It 1040ez Contact your pension provider and your employer's payroll department. It 1040ez And remember, this is not a final decision. It 1040ez If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above. It 1040ez You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. It 1040ez You may need more tax withheld, or you may need less. It 1040ez Table 1-2. It 1040ez Tax Credits for 2014 For more information about the . It 1040ez . It 1040ez . It 1040ez See . It 1040ez . It 1040ez . It 1040ez Adoption credit Form 8839 instructions Child and dependent care expenses, credit for Publication 503, Child and Dependent Care Expenses Child tax credit (including the additional child tax credit) Instructions for Form 1040 or Form 1040A Earned income credit Publication 596, Earned Income Credit Education credits Publication 970, Tax Benefits for Education Elderly or the disabled, credit for the Publication 524, Credit for the Elderly or the Disabled Foreign tax credit (except any credit that applies to wages not subject to U. It 1040ez S. It 1040ez income tax withholding because they are subject to income tax withholding by a foreign country) Publication 514, Foreign Tax Credit for Individuals General business credit Form 3800, General Business Credit Mortgage interest credit Publication 530, Tax Information for First-Time Homeowners Qualified electric vehicle passive activity credit Form 8834 Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year) Form 8801 instructions Retirement savings contributions credit (saver's credit) Publication 590, Individual Retirement Arrangements (IRAs) Tax credit bonds, credit to holders of Form 8912 instructions Completing Form W-4 and Worksheets When reading the following discussion, you may find it helpful to refer to Form W-4. It 1040ez Marital Status There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. It 1040ez Everyone else must have tax withheld at the higher single rate. It 1040ez Single. It 1040ez   You must check the “Single” box if any of the following applies. It 1040ez You are single. It 1040ez If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. It 1040ez You are married, but neither you nor your spouse is a citizen or resident of the United States. It 1040ez You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. It 1040ez For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. It 1040ez Married. It 1040ez   You qualify to check the “Married” box if any of the following applies. It 1040ez You are married and neither you nor your spouse is a nonresident alien. It 1040ez You are considered married for the whole year even if your spouse died during the year. It 1040ez You are married and either you or your spouse is a nonresident alien who has chosen to be treated as a resident alien for tax purposes. It 1040ez For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. It 1040ez You expect to be able to file your return as a qualifying widow or widower. It 1040ez You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. It 1040ez However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. It 1040ez For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information. It 1040ez Married, but withhold at higher single rate. It 1040ez   Some married people find that they do not have enough tax withheld at the married rate. It 1040ez This can happen, for example, when both spouses work. It 1040ez To avoid this, you can check the “Married, but withhold at higher Single rate” box (even if you qualify for the married rate). It 1040ez Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later. It 1040ez Withholding Allowances The more allowances you claim on Form W-4, the less income tax your employer will withhold. It 1040ez You will have the most tax withheld if you claim “0” allowances. It 1040ez The number of allowances you can claim depends on the following factors. It 1040ez How many exemptions you can take on your tax return. It 1040ez Whether you have income from more than one job. It 1040ez What deductions, adjustments to income, and credits you expect to have for the year. It 1040ez Whether you will file as head of household. It 1040ez If you are married (filing jointly), it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4. It 1040ez Or, if married filing separately, whether or not your spouse also works. It 1040ez Form W-4 worksheets. It 1040ez    Form W-4 has worksheets to help you figure how many withholding allowances you can claim. It 1040ez The worksheets are for your own records. It 1040ez Do not give them to your employer. It 1040ez   Complete only one set of Form W-4 worksheets, no matter how many jobs you have. It 1040ez If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. It 1040ez Complete separate sets of worksheets only if you and your spouse will file separate returns. It 1040ez   If you are not exempt from withholding (see Exemption From Withholding , later), complete the Personal Allowances Worksheet on page 1 of the form. It 1040ez Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. It 1040ez If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments. It 1040ez   Complete all worksheets that apply to your situation. It 1040ez The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year. It 1040ez Multiple jobs. It 1040ez   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. It 1040ez Then split your allowances between the Forms W-4 for each job. It 1040ez You cannot claim the same allowances with more than one employer at the same time. It 1040ez You can claim all your allowances with one employer and none with the other(s), or divide them any other way. It 1040ez Married individuals. It 1040ez   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. It 1040ez Use only one set of worksheets. It 1040ez You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. It 1040ez   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. It 1040ez Alternative method of figuring withholding allowances. It 1040ez   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. It 1040ez   The method you use must be based on withholding schedules, the tax rate schedules, and the 2014 Estimated Tax Worksheet in chapter 2. It 1040ez It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4. It 1040ez   You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. It 1040ez You still must give your employer a Form W-4 claiming your withholding allowances. It 1040ez Employees who are not citizens or residents. It 1040ez   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. It 1040ez However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U. It 1040ez S. It 1040ez national. It 1040ez It also does not apply if your spouse is a U. It 1040ez S. It 1040ez citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. It 1040ez Special rules apply to residents of South Korea and India. It 1040ez For more information, see Withholding From Compensation in chapter 8 of Publication 519. It 1040ez Personal Allowances Worksheet Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply. It 1040ez Exemptions. It 1040ez Only one job. It 1040ez Head of household filing status. It 1040ez Child and dependent care credit. It 1040ez Child tax credit. It 1040ez Exemptions (worksheet lines A, C, and D). It 1040ez   You can claim one withholding allowance for each exemption you expect to claim on your tax return. It 1040ez Self. It 1040ez   You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. It 1040ez If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption. It 1040ez Spouse. It 1040ez   You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. It 1040ez Do not claim this allowance if you and your spouse expect to file separate returns. It 1040ez Dependents. It 1040ez   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. It 1040ez Only one job (worksheet line B). It 1040ez    You can claim an additional withholding allowance if any of the following apply for 2014. It 1040ez You are single and you have only one job at a time. It 1040ez You are married, you have only one job at a time, and your spouse does not work. It 1040ez Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less. It 1040ez If you qualify for this allowance, enter “1” on line B of the worksheet. It 1040ez Head of household filing status (worksheet line E). It 1040ez   Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that: Was the main home for all of 2014 of your parent whom you can claim as a dependent, or You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent. It 1040ez For more information, see Publication 501. It 1040ez   If you expect to file as head of household on your 2014 tax return, enter “1” on line E of the worksheet. It 1040ez Reduction of personal allowances. It 1040ez   For 2014, your deduction for personal exemptions on your tax return is reduced if your adjusted gross income (AGI) is more than the AGI shown next for your filing status. It 1040ez Personal Allowance Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1-1 to figure your reduced number of personal allowances on lines A, C, and D of the Personal Allowances Worksheet. It 1040ez Worksheet 1-1. It 1040ez Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold 1. It 1040ez Enter the total amount of allowances on lines A, C, and D of the Personal Allowance Worksheet without regard to the phaseout rule 1. It 1040ez   2. It 1040ez Enter your expected AGI 2. It 1040ez       3. It 1040ez Enter $254,200 if single $305,050 if married filing jointly or qualifying widow(er) $152,525 if married filing separately $279,650 if head of household 3. It 1040ez       4. It 1040ez Subtract line 3 from line 2 4. It 1040ez       5. It 1040ez Divide line 4 by $125,000 ($62,500 if married filing separately). It 1040ez Enter the result as a decimal 5. It 1040ez   6. It 1040ez Multiply line 1 by line 5. It 1040ez If the result is not a whole number, increase it to the next higher whole number 6. It 1040ez   7. It 1040ez Subtract line 6 from line 1. It 1040ez The total of the numbers you enter on A, C, and D of the Personal Allowances Worksheet can not be more than this amount 7. It 1040ez     Child and dependent care credit (worksheet line F). It 1040ez   Enter “1” on line F if you expect to claim a credit for at least $2,000 of qualifying child or dependent care expenses on your 2014 return. It 1040ez Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. It 1040ez For more information, see Publication 503, Child and Dependent Care Expenses. It 1040ez   Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. It 1040ez Child tax credit (worksheet line G). It 1040ez   If your total income will be less than $65,000 ($95,000 if married), enter “2” on line G for each eligible child. It 1040ez Subtract “1” from that amount if you have three to six eligible children. It 1040ez Subtract “2” from that amount if you have seven or more eligible children. It 1040ez   If your total income will be between $65,000 and $84,000 ($95,000 and $119,000 if married), enter “1” on line G for each eligible child. It 1040ez   An eligible child is any child: Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Who will be under age 17 at the end of 2014, Who is younger than you (or your spouse if filing jointly) or permanently and totally disabled, Who will not provide over half of his or her own support for 2014, Who will not file a joint return, unless the return is filed only as a claim for refund, Who will live with you for more than half of 2014, Who is a U. It 1040ez S. It 1040ez citizen, U. It 1040ez S. It 1040ez national, or U. It 1040ez S. It 1040ez resident alien, and Who will be claimed as a dependent on your return. It 1040ez If you are a U. It 1040ez S. It 1040ez citizen or U. It 1040ez S. It 1040ez national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. It 1040ez   Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2013 instructions for Form 1040 or 1040A, line 6c. It 1040ez   For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A. It 1040ez   Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. It 1040ez Total personal allowances (worksheet line H). It 1040ez    Add lines A through G and enter the total on line H. It 1040ez If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4. It 1040ez Deductions and Adjustments Worksheet Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. It 1040ez Also, complete this worksheet when you have changes to those items to see if you need to change your withholding. It 1040ez Use the amount of each item you reasonably can expect to show on your return. It 1040ez However, do not use more than: The amount shown for that item on your 2013 return (or your 2012 return if you have not yet filed your 2013 return), plus Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2013 or 2014. It 1040ez Do not include any amount shown on your last tax return that has been disallowed by the IRS. It 1040ez Example. It 1040ez On June 30, 2013, you bought your first home. It 1040ez On your 2013 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. It 1040ez Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2014 return. It 1040ez You can use $13,200 to figure the number of your withholding allowances for itemized deductions. It 1040ez Not itemizing deductions. It 1040ez   If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “0” on line 3 of the worksheet. It 1040ez Itemized deductions (worksheet line 1). It 1040ez   Enter your estimated total itemized deductions on line 1 of the worksheet. It 1040ez   Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2014. It 1040ez You normally claim these deductions on Schedule A of Form 1040. It 1040ez Medical and dental expenses that are more than 10% (7. It 1040ez 5% if either you or your spouse was born before January 2, 1950) of your 2014 AGI (defined under AGI , later). It 1040ez State and local income or property taxes. It 1040ez Deductible home mortgage interest. It 1040ez Investment interest up to net investment income. It 1040ez Charitable contributions. It 1040ez Casualty and theft losses that are more than $100 and 10% of your AGI. It 1040ez Fully deductible miscellaneous itemized deductions, including: Impairment-related work expenses of persons with disabilities, Federal estate tax on income in respect of a decedent, Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it, Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death, Gambling losses up to the amount of gambling winnings reported on your return, and Casualty and theft losses from  income-producing property. It 1040ez Other miscellaneous itemized deductions that are more than 2% of your AGI, including: Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies, Safe deposit box rental, Tax counsel and assistance, and Certain fees paid to an IRA trustee or custodian. It 1040ez AGI. It 1040ez   For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2014 minus any estimated adjustments to income (discussed later) that you include on line 4 of the Deductions and Adjustments Worksheet. It 1040ez Phaseout of itemized deductions. It 1040ez   For 2014, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. It 1040ez    Itemized Deduction Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1–2 to figure your reduction in itemized deductions. It 1040ez Worksheet 1-2. It 1040ez Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions 1. It 1040ez Enter the estimated total of your itemized deductions 1. It 1040ez   2. It 1040ez Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses 2. It 1040ez   3. It 1040ez Is the amount on line 2 less than the amount on line 1? ❑ No. It 1040ez Stop here. It 1040ez Your deduction is not limited. It 1040ez Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. It 1040ez  ❑ Yes. It 1040ez Subtract line 2 from line 1. It 1040ez 3. It 1040ez       4. It 1040ez Multiply line 3 by 80% (. It 1040ez 80) 4. It 1040ez       5. It 1040ez Enter your expected AGI 5. It 1040ez       6. It 1040ez Enter $305,050 If married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately 6. It 1040ez   7. It 1040ez Is the amount on line 6 less than the amount on line 5? ❑ No. It 1040ez Stop here. It 1040ez Your deduction is not limited. It 1040ez Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. It 1040ez  ❑ Yes. It 1040ez Subtract line 6 from line 5. It 1040ez 7. It 1040ez       8. It 1040ez Multiply line 7 by 3% (. It 1040ez 03) 8. It 1040ez       9. It 1040ez Enter the smaller of line 4 or line 8 9. It 1040ez     10. It 1040ez Subtract line 9 from line 1. It 1040ez Enter the result here and on line 1 of the Deductions and Adjustments Worksheet 10. It 1040ez     Adjustments to income (worksheet line 4). It 1040ez   Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet. It 1040ez   You can take the following adjustments to income into account when figuring additional withholding allowances for 2014. It 1040ez These adjustments appear on page 1 of your Form 1040 or 1040A. It 1040ez Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b. It 1040ez Net operating loss carryovers. It 1040ez Certain business expenses of reservists, performing artists, and fee-based government officials. It 1040ez Health savings account or medical savings account deduction. It 1040ez Certain moving expenses. It 1040ez Deduction for self-employment tax. It 1040ez Deduction for contributions to self-employed SEP, and qualified SIMPLE plans. It 1040ez Self-employed health insurance deduction. It 1040ez Penalty on early withdrawal of savings. It 1040ez Alimony paid. It 1040ez IRA deduction. It 1040ez Student loan interest deduction. It 1040ez Jury duty pay given to your employer. It 1040ez Reforestation amortization and expenses. It 1040ez Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. It 1040ez Repayment of certain supplemental unemployment benefits. It 1040ez Contributions to IRC 501(c)(18)(D) pension plans. It 1040ez Contributions by certain chaplains to IRC 403(b) plans. It 1040ez Attorney fees and court costs for certain unlawful discrimination claims. It 1040ez Attorney fees and court costs for certain whistleblower awards. It 1040ez Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040). It 1040ez Tax credits (worksheet line 5). It 1040ez   Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). It 1040ez But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet. It 1040ez   If you take the child and dependent care credit into account on line 5, do not use line F. It 1040ez If you take the child tax credit into account on line 5, do not use line G. It 1040ez   In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits. It 1040ez See the individual tax form instructions for more details. It 1040ez Foreign tax credit, except any credit that applies to wages not subject to U. It 1040ez S. It 1040ez income tax withholding because they are subject to income tax withholding by a foreign country. It 1040ez See Publication 514, Foreign Tax Credit for Individuals. It 1040ez Credit for the elderly or the disabled. It 1040ez See Publication 524, Credit for the Elderly or the Disabled. It 1040ez Education credits. It 1040ez See Publication 970, Tax Benefits for Education. It 1040ez Retirement savings contributions credit (saver's credit). It 1040ez See Publication 590. It 1040ez Mortgage interest credit. It 1040ez See Publication 530, Tax Information for Homeowners. It 1040ez Adoption credit. It 1040ez See the Instructions for Form 8839. It 1040ez Credit for nonrefundable portion of prior year minimum tax if you paid alternative minimum tax in an earlier year. It 1040ez See the Instructions for Form 8801. It 1040ez General business credit. It 1040ez See the Instructions for Form 3800. It 1040ez Earned income credit. It 1040ez See Publication 596. It 1040ez Figuring line 5 entry. It 1040ez   To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-3 . It 1040ez Example. It 1040ez You are married and expect to file a joint return for 2014. It 1040ez Your combined estimated wages are $68,000. It 1040ez Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660). It 1040ez In Table 1-3, the number corresponding to your combined estimated wages ($42,001 – $98,000) is 6. It 1040ez 7. It 1040ez Multiply your total estimated tax credits of $2,660 by 6. It 1040ez 7. It 1040ez Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. It 1040ez Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet. It 1040ez Nonwage income (worksheet line 6). It 1040ez   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). It 1040ez Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income. It 1040ez   If line 6 is more than line 5, you may not have enough income tax withheld from your wages. It 1040ez See Getting the Right Amount of Tax Withheld , later. It 1040ez Net deductions and adjustments (worksheet line 8). It 1040ez    If line 7 is less than $3,950, enter “0” on line 8. It 1040ez If line 7 is $3,950 or more, divide it by $3,950, drop any fraction, and enter the result on line 8. It 1040ez Example. It 1040ez If line 7 is $5,200, $5,200 ÷ $3,950 = 1. It 1040ez 32. It 1040ez Drop the fraction (. It 1040ez 32) and enter “1” on line 8. It 1040ez Two-Earners/Multiple Jobs Worksheet Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $50,000 ($20,000 if married). It 1040ez Reducing your allowances (worksheet lines 1-3). It 1040ez   On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). It 1040ez Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). It 1040ez Enter that number on line 2. It 1040ez However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than “3. It 1040ez ”    Table 1-3. It 1040ez Deductions and Adjustments Worksheet (Form W-4)—Line 5 a. It 1040ez  Married Filing Jointly or Qualifying Widow(er) If combined income from all sources is:   Multiply credits by: $0 – 42,000 10. It 1040ez 0 $42,001 – 98,000 6. It 1040ez 7 $98,001 – 180,000 4. It 1040ez 0 $180,001 – 270,000 3. It 1040ez 6 $270,001 – 440,000 3. It 1040ez 0 $440,001 – 490,000. It 1040ez . It 1040ez . It 1040ez . It 1040ez 2. It 1040ez 9 $490,001 and over 2. It 1040ez 5 b. It 1040ez  Single If combined income from all sources is:   Multiply credits by: $0 – 19,000 10. It 1040ez 0 $19,001 – 47,000 6. It 1040ez 7 $47,001 – 104,000 4. It 1040ez 0 $104,001 – 205,000 3. It 1040ez 6 $205,001 – 430,000 3. It 1040ez 0 $430,001 and over 2. It 1040ez 5 c. It 1040ez  Head of Household If combined income from all sources is:   Multiply credits by: $0 – 30,000 10. It 1040ez 0 $30,001 – 66,000 6. It 1040ez 7 $66,001 – 150,000 4. It 1040ez 0 $150,001 – 235,000 3. It 1040ez 6 $235,001 – 430,000 3. It 1040ez 0 $430,001 – 460,000 2. It 1040ez 9 $460,001 and over 2. It 1040ez 5 d. It 1040ez  Married Filing Separately   If combined income from all sources is:   Multiply credits by: $0 – 21,000 10. It 1040ez 0 $21,001 – 49,000 6. It 1040ez 7 $49,001 – 90,000 4. It 1040ez 0 $90,001 – 135,000 3. It 1040ez 6 $135,001 – 220,000 3. It 1040ez 0 $220,001 – 245,000 2. It 1040ez 9 $245,001 and over 2. It 1040ez 5   Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. It 1040ez If line 1 is more than or equal to line 2, do not use the rest of the worksheet. It 1040ez   If line 1 is less than line 2, enter “0” on Form W-4, line 5. It 1040ez Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding. It 1040ez Other amounts owed. It 1040ez   If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. It 1040ez The total is the additional withholding needed for the year. It 1040ez Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. It 1040ez You accurately complete all the Form W-4 worksheets that apply to you. It 1040ez You give your employer a new Form W-4 when changes occur. It 1040ez But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. It 1040ez This is most likely to happen in the following situations. It 1040ez You are married and both you and your spouse work. It 1040ez You have more than one job at a time. It 1040ez You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. It 1040ez You will owe additional amounts with your return, such as self-employment tax. It 1040ez Your withholding is based on obsolete Form W-4 information for a substantial part of the year. It 1040ez Your earnings are more than $130,000 if you are single or $180,000 if you are married. It 1040ez You work only part of the year. It 1040ez You change the number of your withholding allowances during the year. It 1040ez You are subject to Additional Medicare Tax or Net Investment Income Tax. It 1040ez If you anticipate liability for Additional Medicare Tax or Net Investment Income Tax, you may request that your employer withhold an additional amount of income tax withholding on Form W-4. It 1040ez Part-Year Method If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. It 1040ez To be eligible for the part-year method, you must meet both of the following requirements. It 1040ez You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. It 1040ez You cannot use a fiscal year. It 1040ez You must not expect to be employed for more than 245 days during the year. It 1040ez To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. It 1040ez If you are temporarily laid off for 30 days or less, count those days too. It 1040ez If you are laid off for more than 30 days, do not count those days. It 1040ez You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year. It 1040ez How to apply for the part-year method. It 1040ez   You must ask your employer in writing to use this method. It 1040ez The request must state all three of the following. It 1040ez The date of your last day of work for any prior employer during the current calendar year. It 1040ez That you do not expect to be employed more than 245 days during the current calendar year. It 1040ez That you use the calendar year as your tax year. It 1040ez Cumulative Wage Method If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. It 1040ez You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. It 1040ez You must ask your employer in writing to use this method. It 1040ez To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. It 1040ez ) since the beginning of the year. It 1040ez Aids for Figuring Your Withholding IRS Withholding Calculator. It 1040ez   If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. It 1040ez Go to www. It 1040ez irs. It 1040ez gov/Individuals/IRS-Withholding-Calculator. It 1040ez It can help you determine the correct amount to be withheld any time during the year. It 1040ez Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. It 1040ez These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. It 1040ez New Form W-4. It 1040ez   When you start a new job, your employer should give you a Form W-4 to fill out. It 1040ez Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. It 1040ez   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. It 1040ez The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. It 1040ez No Form W-4. It 1040ez   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. It 1040ez Repaying withheld tax. It 1040ez   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. It 1040ez Your employer cannot repay any of the tax previously withheld. It 1040ez Instead, claim the full amount withheld when you file your tax return. It 1040ez   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. It 1040ez Your employer can repay the amount that was withheld incorrectly. It 1040ez If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. It 1040ez IRS review of your withholding. It 1040ez   Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. It 1040ez Your employer may be required to send a copy of the Form W-4 to the IRS. It 1040ez There is a penalty for supplying false information on Form W-4. It 1040ez See Penalties , later. It 1040ez   If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a “lock-in letter”) to both you and your employer. It 1040ez   The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. It 1040ez If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. It 1040ez Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. It 1040ez At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter. It 1040ez   After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter. It 1040ez   If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. It 1040ez Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise. It 1040ez   At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. It 1040ez Your employer must then withhold tax based on this new Form W-4. It 1040ez   Additional information is available at IRS. It 1040ez gov. It 1040ez Enter “withholding compliance questions” in the search box. It 1040ez Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. It 1040ez The exemption applies only to income tax, not to social security or Medicare tax. It 1040ez You can claim exemption from withholding for 2014 only if both of the following situations apply. It 1040ez For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. It 1040ez For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. It 1040ez Use Figure 1-A to help you decide whether you can claim exemption from withholding. It 1040ez Do not use Figure 1-A if you: Are 65 or older, Are blind, Will itemize deductions on your 2014 return, Will claim an exemption for a dependent on your 2014 return, or Will claim any tax credits on your 2014 return. It 1040ez These situations are discussed later. It 1040ez Students. It 1040ez   If you are a student, you are not automatically exempt. It 1040ez If you work only part time or during the summer, you may qualify for exemption from withholding. It 1040ez Example 1. It 1040ez You are a high school student and expect to earn $2,500 from a summer job. It 1040ez You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. It 1040ez You worked last summer and had $375 federal income tax withheld from your pay. It 1040ez The entire $375 was refunded when you filed your 2013 return. It 1040ez Using Figure 1-A, you find that you can claim exemption from withholding. It 1040ez Please click here for the text description of the image. It 1040ez Figure 1-A: Exemption From Withholding on Form W-4 Example 2. It 1040ez The facts are the same as in Example 1, except that you also have a savings account and expect to have $400 interest income during the year. It 1040ez Using Figure 1-A, you find that you cannot claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,000. It 1040ez    You may have to file a tax return, even if you are exempt from withholding. It 1040ez See Publication 501 to see whether you must file a return. It 1040ez    Age 65 or older or blind. It 1040ez If you are 65 or older or blind, use Worksheet 1-3 or Worksheet 1-4, to help you decide whether you can claim exemption from withholding. It 1040ez Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. It 1040ez Instead, see Itemizing deductions or claiming exemptions or credits, next. It 1040ez Itemizing deductions or claiming exemptions or credits. It 1040ez   If you had no tax liability for 2013, and you will: Itemize deductions, Claim an exemption for a dependent, or Claim a tax credit, use the 2014 Estimated Tax Worksheet (also see chapter 2), to figure your 2014 expected tax liability. It 1040ez You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero. It 1040ez Claiming exemption from withholding. It 1040ez   To claim exemption, you must give your employer a Form W-4. It 1040ez Do not complete lines 5 and 6. It 1040ez Enter “Exempt” on line 7. It 1040ez   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. It 1040ez If you claim exemption in 2014 but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. It 1040ez   Your claim of exempt status may be reviewed by the IRS. It 1040ez See IRS review of your withholding , earlier. It 1040ez An exemption is good for only 1 year. It 1040ez   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. It 1040ez Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. It 1040ez The payer can figure withholding on supplemental wages using the same method used for your regular wages. It 1040ez However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. It 1040ez Expense allowances. It 1040ez   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. It 1040ez A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses. It 1040ez   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. It 1040ez Accountable plan. It 1040ez   To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules. It 1040ez Your expenses must have a business connection. It 1040ez That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. It 1040ez You must adequately account to your employer for these expenses within a reasonable period of time. It 1040ez You must return any excess reimbursement or allowance within a reasonable period of time. It 1040ez    An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. It 1040ez   The definition of reasonable period of time depends on the facts and circumstances of your situation. It 1040ez However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. It 1040ez You receive an advance within 30 days of the time you have an expense. It 1040ez You adequately account for your expenses within 60 days after they were paid or incurred. It 1040ez You return any excess reimbursement within 120 days after the expense was paid or incurred. It 1040ez You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. It 1040ez Nonaccountable plan. It 1040ez   Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. It 1040ez For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. It 1040ez Penalties You may have to pay a penalty of $500 if both of the following apply. It 1040ez You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. It 1040ez You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. It 1040ez There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. It 1040ez The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. It 1040ez These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. It 1040ez A simple error or an honest mistake will not result in one of these penalties. It 1040ez For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. It 1040ez However, see chapter 4 for information on the penalty for underpaying your tax. It 1040ez Tips The tips you receive while working on your job are considered part of your pay. It 1040ez You must include your tips on your tax return on the same line as your regular pay. It 1040ez However, tax is not withheld directly from tip income, as it is from your regular pay. It 1040ez Nevertheless, your employer will take into account the tips you report when figuring how much to withhold from your regular pay. It 1040ez Reporting tips to your employer. It 1040ez   If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. It 1040ez The report is due by the 10th day of the following month. It 1040ez   If you have more than one job, make a separate report to each employer. It 1040ez Report only the tips you received while working for that employer, and only if they total $20 or more for the month. It 1040ez How employer figures amount to withhold. It 1040ez   The tips you report to your employer are counted as part of your income for the month you report them. It 1040ez Your employer can figure your withholding in either of two ways. It 1040ez By withholding at the regular rate on the sum of your pay plus your reported tips. It 1040ez By withholding at the regular rate on your pay plus a percentage of your reported tips. It 1040ez Not enough pay to cover taxes. It 1040ez   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. It 1040ez   If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. It 1040ez If not enough tax is withheld, you may have to pay estimated tax. It 1040ez When you file your return, you also may have to pay any Medicare and social security tax or railroad retirement tax your employer could not withhold. It 1040ez Tips not reported to your employer. It 1040ez   On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer (this includes the value of any noncash tips you received, such as tickets, passes, or other items of value). It 1040ez Make sure you are having enough tax withheld, or are paying enough estimated tax (see chapter 2), to cover all your tip income. It 1040ez Allocated tips. It 1040ez   If you work in a large food or beverage establishment, your employer may have to report an allocated amount of tips on your Form W-2. It 1040ez   Your employer should not withhold income tax, Medicare tax, and social security or railroad retirement tax on the allocated amount. It 1040ez Withholding is based only on your pay plus your reported tips. It 1040ez Your employer should refund to you any incorrectly withheld tax. It 1040ez More information. It 1040ez   For more information on the reporting and withholding rules for tip income and on tip allocation, see Publi
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The It 1040ez

It 1040ez 26. It 1040ez   Car Expenses and Other Employee Business Expenses Table of Contents What's New Introduction Useful Items - You may want to see: Travel ExpensesTraveling Away From Home Tax Home Temporary Assignment or Job What Travel Expenses Are Deductible? Travel in the United States Travel Outside the United States Conventions Entertainment Expenses50% Limit What Entertainment Expenses Are Deductible? What Entertainment Expenses Are Not Deductible? Gift Expenses Transportation ExpensesArmed Forces reservists. It 1040ez Parking fees. It 1040ez Advertising display on car. It 1040ez Car pools. It 1040ez Hauling tools or instruments. It 1040ez Union members' trips from a union hall. It 1040ez Car Expenses RecordkeepingHow To Prove Expenses How Long To Keep Records and Receipts How To ReportGifts. It 1040ez Statutory employees. It 1040ez Reimbursements Completing Forms 2106 and 2106-EZ Special Rules What's New Standard mileage rate. It 1040ez  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. It 1040ez Car expenses and use of the standard mileage rate are explained under Transportation Expenses , later. It 1040ez Depreciation limits on cars, trucks, and vans. It 1040ez  For 2013, the first-year limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). It 1040ez For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). It 1040ez For more information, see Depreciation limits in Publication 463. It 1040ez Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. It 1040ez An ordinary expense is one that is common and accepted in your trade or business. It 1040ez A necessary expense is one that is helpful and appropriate for your business. It 1040ez An expense does not have to be required to be considered necessary. It 1040ez This chapter explains the following. It 1040ez What expenses are deductible. It 1040ez How to report your expenses on your return. It 1040ez What records you need to prove your expenses. It 1040ez How to treat any expense reimbursements you may receive. It 1040ez Who does not need to use this chapter. It 1040ez   If you are an employee, you will not need to read this chapter if all of the following are true. It 1040ez You fully accounted to your employer for your work-related expenses. It 1040ez You received full reimbursement for your expenses. It 1040ez Your employer required you to return any excess reimbursement and you did so. It 1040ez There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. It 1040ez If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. It 1040ez See Reimbursements , later, if you would like more information on reimbursements and accounting to your employer. It 1040ez    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. It 1040ez Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming Form 2106 Employee Business Expenses Form 2106-EZ Unreimbursed Employee Business Expenses Travel Expenses If you temporarily travel away from your tax home, you can use this section to determine if you have deductible travel expenses. It 1040ez This section discusses: Traveling away from home, Tax home, Temporary assignment or job, and What travel expenses are deductible. It 1040ez It also discusses the standard meal allowance, rules for travel inside and outside the United States, and deductible convention expenses. It 1040ez Travel expenses defined. It 1040ez   For tax purposes, travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job. It 1040ez   You will find examples of deductible travel expenses in Table 26-1 . It 1040ez Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. It 1040ez This rest requirement is not satisfied by merely napping in your car. It 1040ez You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. It 1040ez Example 1. It 1040ez You are a railroad conductor. It 1040ez You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. It 1040ez During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. It 1040ez You are considered to be away from home. It 1040ez Example 2. It 1040ez You are a truck driver. It 1040ez You leave your terminal and return to it later the same day. It 1040ez You get an hour off at your turnaround point to eat. It 1040ez Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. It 1040ez Members of the Armed Forces. It 1040ez   If you are a member of the U. It 1040ez S. It 1040ez Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. It 1040ez You cannot deduct your expenses for meals and lodging. It 1040ez You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. It 1040ez If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. It 1040ez    A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. It 1040ez Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. It 1040ez Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It 1040ez It includes the entire city or general area in which your business or work is located. It 1040ez If you have more than one regular place of business, your tax home is your main place of business. It 1040ez See Main place of business or work , later. It 1040ez If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. It 1040ez See No main place of business or work , later. It 1040ez If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. It 1040ez As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. It 1040ez Main place of business or work. It 1040ez   If you have more than one place of business or work, consider the following when determining which one is your main place of business or work. It 1040ez The total time you ordinarily spend in each place. It 1040ez The level of your business activity in each place. It 1040ez Whether your income from each place is significant or insignificant. It 1040ez Example. It 1040ez You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. It 1040ez You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. It 1040ez Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. It 1040ez No main place of business or work. It 1040ez   You may have a tax home even if you do not have a regular or main place of business or work. It 1040ez Your tax home may be the home where you regularly live. It 1040ez Factors used to determine tax home. It 1040ez   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. It 1040ez You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. It 1040ez You have living expenses at your main home that you duplicate because your business requires you to be away from that home. It 1040ez You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. It 1040ez   If you satisfy all three factors, your tax home is the home where you regularly live. It 1040ez If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. It 1040ez If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. It 1040ez Example. It 1040ez You are single and live in Boston in an apartment you rent. It 1040ez You have worked for your employer in Boston for a number of years. It 1040ez Your employer enrolls you in a 12-month executive training program. It 1040ez You do not expect to return to work in Boston after you complete your training. It 1040ez During your training, you do not do any work in Boston. It 1040ez Instead, you receive classroom and on-the-job training throughout the United States. It 1040ez You keep your apartment in Boston and return to it frequently. It 1040ez You use your apartment to conduct your personal business. It 1040ez You also keep up your community contacts in Boston. It 1040ez When you complete your training, you are transferred to Los Angeles. It 1040ez You do not satisfy factor (1) because you did not work in Boston. It 1040ez You satisfy factor (2) because you had duplicate living expenses. It 1040ez You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. It 1040ez Therefore, you have a tax home in Boston. It 1040ez Tax home different from family home. It 1040ez   If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. It 1040ez You also cannot deduct the cost of meals and lodging while at your tax home. It 1040ez See Example 1 . It 1040ez   If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. It 1040ez See Example 2 . It 1040ez Example 1. It 1040ez You are a truck driver and you and your family live in Tucson. It 1040ez You are employed by a trucking firm that has its terminal in Phoenix. It 1040ez At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. It 1040ez You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. It 1040ez This is because Phoenix is your tax home. It 1040ez Example 2. It 1040ez Your family home is in Pittsburgh, where you work 12 weeks a year. It 1040ez The rest of the year you work for the same employer in Baltimore. It 1040ez In Baltimore, you eat in restaurants and sleep in a rooming house. It 1040ez Your salary is the same whether you are in Pittsburgh or Baltimore. It 1040ez Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. It 1040ez You cannot deduct any expenses you have for meals and lodging there. It 1040ez However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. It 1040ez You can deduct the cost of your round trip between Baltimore and Pittsburgh. It 1040ez You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. It 1040ez Temporary Assignment or Job You may regularly work at your tax home and also work at another location. It 1040ez It may not be practical to return to your tax home from this other location at the end of each work day. It 1040ez Temporary assignment vs. It 1040ez indefinite assignment. It 1040ez   If your assignment or job away from your main place of work is temporary, your tax home does not change. It 1040ez You are considered to be away from home for the whole period you are away from your main place of work. It 1040ez You can deduct your travel expenses if they otherwise qualify for deduction. It 1040ez Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. It 1040ez   However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. It 1040ez An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. It 1040ez   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. It 1040ez You may be able to deduct the cost of relocating to your new tax home as a moving expense. It 1040ez See Publication 521 for more information. It 1040ez Exception for federal crime investigations or prosecutions. It 1040ez   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. It 1040ez This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year, provided you meet the other requirements for deductibility. It 1040ez   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate or prosecute, or provide support services for the investigation or prosecution of a federal crime. It 1040ez Determining temporary or indefinite. It 1040ez   You must determine whether your assignment is temporary or indefinite when you start work. It 1040ez If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. It 1040ez An assignment or job that is initially temporary may become indefinite due to changed circumstances. It 1040ez A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. It 1040ez Going home on days off. It 1040ez   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. It 1040ez You cannot deduct the cost of your meals and lodging there. It 1040ez However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. It 1040ez You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. It 1040ez   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. It 1040ez In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. It 1040ez Probationary work period. It 1040ez   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. It 1040ez You cannot deduct any of your expenses for meals and lodging during the probationary period. It 1040ez What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. It 1040ez You can deduct ordinary and necessary expenses you have when you travel away from home on business. It 1040ez The type of expense you can deduct depends on the facts and your circumstances. It 1040ez Table 26-1 summarizes travel expenses you may be able to deduct. It 1040ez You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. It 1040ez When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. It 1040ez You can use a log, diary, notebook, or any other written record to keep track of your expenses. It 1040ez The types of expenses you need to record, along with supporting documentation, are described in Table 26-2 , later. It 1040ez Separating costs. It 1040ez   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. It 1040ez You must have a reasonable basis for making this allocation. It 1040ez For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. It 1040ez Travel expenses for another individual. It 1040ez   If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. It 1040ez Employee. It 1040ez   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. It 1040ez Business associate. It 1040ez   If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. It 1040ez A business associate is someone with whom you could reasonably expect to engage or deal in the active conduct of your business. It 1040ez A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. It 1040ez Bona fide business purpose. It 1040ez   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. It 1040ez Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. It 1040ez Example. It 1040ez Jerry drives to Chicago on business and takes his wife, Linda, with him. It 1040ez Linda is not Jerry's employee. It 1040ez Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. It 1040ez The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. It 1040ez Her expenses are not deductible. It 1040ez Jerry pays $199 a day for a double room. It 1040ez A single room costs $149 a day. It 1040ez He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. It 1040ez If he uses public transportation, he can deduct only his fare. It 1040ez Table 26-1. It 1040ez Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. It 1040ez IF you have expenses for. It 1040ez . It 1040ez . It 1040ez THEN you can deduct the cost of. It 1040ez . It 1040ez . It 1040ez transportation travel by airplane, train, bus, or car between your home and your business destination. It 1040ez If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. It 1040ez If you travel by ship, see Luxury Water Travel and Cruise ships (under Conventions) in Publication 463 for additional rules and limits. It 1040ez taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. It 1040ez baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. It 1040ez car operating and maintaining your car when traveling away from home on business. It 1040ez You can deduct actual expenses or the standard mileage rate as well as business-related tolls and parking. It 1040ez If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. It 1040ez lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. It 1040ez Meals include amounts spent for food, beverages, taxes, and related tips. It 1040ez See Meals and Incidental Expenses for additional rules and limits. It 1040ez cleaning dry cleaning and laundry. It 1040ez telephone business calls while on your business trip. It 1040ez This includes business communication by fax machine or other communication devices. It 1040ez tips tips you pay for any expenses in this chart. It 1040ez other other similar ordinary and necessary expenses related to your business travel. It 1040ez These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. It 1040ez Meals and Incidental Expenses You can deduct the cost of meals in either of the following situations. It 1040ez It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. It 1040ez The meal is business-related entertainment. It 1040ez Business-related entertainment is discussed under Entertainment Expenses , later. It 1040ez The following discussion deals only with meals (and incidental expenses) that are not business-related entertainment. It 1040ez Lavish or extravagant. It 1040ez   You cannot deduct expenses for meals that are lavish or extravagant. It 1040ez An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. It 1040ez Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. It 1040ez 50% limit on meals. It 1040ez   You can figure your meal expenses using either of the following methods. It 1040ez Actual cost. It 1040ez The standard meal allowance. It 1040ez Both of these methods are explained below. It 1040ez But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. It 1040ez   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. It 1040ez If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. It 1040ez The 50% limit is explained later under Entertainment Expenses . It 1040ez Accountable and nonaccountable plans are discussed later under Reimbursements . It 1040ez Actual cost. It 1040ez   You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. It 1040ez If you use this method, you must keep records of your actual cost. It 1040ez Standard meal allowance. It 1040ez   Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. It 1040ez It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. It 1040ez The set amount varies depending on where and when you travel. It 1040ez In this chapter, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . It 1040ez If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. It 1040ez See Recordkeeping , later. It 1040ez Incidental expenses. It 1040ez   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. It 1040ez Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. It 1040ez Incidental expenses only method. It 1040ez   You can use an optional method (instead of actual cost) for deducting incidental expenses only. It 1040ez The amount of the deduction is $5 a day. It 1040ez You can use this method only if you did not pay or incur any meal expenses. It 1040ez You cannot use this method on any day that you use the standard meal allowance. It 1040ez    Federal employees should refer to the Federal Travel Regulations at  www. It 1040ez gsa. It 1040ez gov. It 1040ez Find “What GSA Offers” and click on “Regulations: FMR, FTR, & FAR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. It 1040ez 50% limit may apply. It 1040ez   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. It 1040ez If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. It 1040ez The 50% limit is explained later under Entertainment Expenses . It 1040ez Accountable and nonaccountable plans are discussed later under Reimbursements . It 1040ez There is no optional standard lodging amount similar to the standard meal allowance. It 1040ez Your allowable lodging expense deduction is your actual cost. It 1040ez Who can use the standard meal allowance. It 1040ez   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. It 1040ez   Use of the standard meal allowance for other travel. It 1040ez    You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. It 1040ez You can also use it to figure your meal expenses when you travel for qualifying educational purposes. It 1040ez You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. It 1040ez Amount of standard meal allowance. It 1040ez   The standard meal allowance is the federal M&IE rate. It 1040ez For travel in 2013, the daily rate for most small localities in the United States is $46. It 1040ez   Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. It 1040ez You can find this information (organized by state) on the Internet at www. It 1040ez gsa. It 1040ez gov. It 1040ez Click on “Per Diem Rates,” then select “2013” for the period January 1, 2013 – September 30, 2013, and select “2014” for the period October 1, 2013 – December 31, 2013. It 1040ez However, you can apply the rates in effect before October 1, 2013, for expenses of all travel within the United States for 2013 instead of the updated rates. It 1040ez You must consistently use either the rates for the first 9 months for all of 2013 or the updated rates for the period of October 1, 2013, through December 31, 2013. It 1040ez   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. It 1040ez If you work in the transportation industry, however, see Special rate for transportation workers , later. It 1040ez Standard meal allowance for areas outside the continental United States. It 1040ez    The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. It 1040ez The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. It 1040ez S. It 1040ez Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. It 1040ez The Department of State establishes per diem rates for all other foreign areas. It 1040ez    You can access per diem rates for non-foreign areas outside the continental United States at: www. It 1040ez defensetravel. It 1040ez dod. It 1040ez mil/site/perdiemCalc. It 1040ez cfm. It 1040ez You can access all other foreign per diem rates at www. It 1040ez state. It 1040ez gov/travel/. It 1040ez Click on “Travel Per Diem Allowances for Foreign Areas” under “Foreign Per Diem Rates,” to obtain the latest foreign per diem rates. It 1040ez Special rate for transportation workers. It 1040ez   You can use a special standard meal allowance if you work in the transportation industry. It 1040ez You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. It 1040ez If this applies to you, you can claim a standard daily meal allowance of $59 ($65 for travel outside the continental United States). It 1040ez   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. It 1040ez If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. It 1040ez Travel for days you depart and return. It 1040ez   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). It 1040ez You can do so by one of two methods. It 1040ez Method 1: You can claim 3/4 of the standard meal allowance. It 1040ez Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. It 1040ez Example. It 1040ez Jen is employed in New Orleans as a convention planner. It 1040ez In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. It 1040ez She left her home in New Orleans at 10 a. It 1040ez m. It 1040ez on Wednesday and arrived in Washington, DC, at 5:30 p. It 1040ez m. It 1040ez After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. It 1040ez m. It 1040ez Jen's employer gave her a flat amount to cover her expenses and included it with her wages. It 1040ez Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. It 1040ez Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. It 1040ez For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. It 1040ez Travel in the United States The following discussion applies to travel in the United States. It 1040ez For this purpose, the United States includes only the 50 states and the District of Columbia. It 1040ez The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. It 1040ez See Part of Trip Outside the United States , later. It 1040ez Trip Primarily for Business You can deduct all your travel expenses if your trip was entirely business related. It 1040ez If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. It 1040ez These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. It 1040ez Example. It 1040ez You work in Atlanta and take a business trip to New Orleans in May. It 1040ez On your way home, you stop in Mobile to visit your parents. It 1040ez You spend $1,996 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. It 1040ez If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,696. It 1040ez You can deduct $1,696 for your trip, including the cost of round-trip transportation to and from New Orleans. It 1040ez The deduction for your meals is subject to the 50% limit on meals mentioned earlier. It 1040ez Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. It 1040ez However, you can deduct any expenses you have while at your destination that are directly related to your business. It 1040ez A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. It 1040ez The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. It 1040ez Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later under Travel Outside the United States for that part of the trip. It 1040ez For the part of your trip that is inside the United States, use the rules for travel in the United States. It 1040ez Travel outside the United States does not include travel from one point in the United States to another point in the United States. It 1040ez The following discussion can help you determine whether your trip was entirely within the United States. It 1040ez Public transportation. It 1040ez   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. It 1040ez Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . It 1040ez Example. It 1040ez You fly from New York to Puerto Rico with a scheduled stop in Miami. It 1040ez You return to New York nonstop. It 1040ez The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. It 1040ez Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. It 1040ez Private car. It 1040ez   Travel by private car in the United States is travel between points in the United States, even when you are on your way to a destination outside the United States. It 1040ez Example. It 1040ez You travel by car from Denver to Mexico City and return. It 1040ez Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. It 1040ez The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. It 1040ez Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. It 1040ez For this purpose, the United States includes only the 50 states and the District of Columbia. It 1040ez How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. It 1040ez See chapter 1 of Publication 463 for information on luxury water travel. It 1040ez Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. It 1040ez Travel entirely for business. It 1040ez   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. It 1040ez Travel considered entirely for business. It 1040ez   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. It 1040ez Exception 1 - No substantial control. It 1040ez   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. It 1040ez The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. It 1040ez   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, Are not related to your employer, and Are not a managing executive. It 1040ez    “Related to your employer” is defined later in this chapter under Per Diem and Car Allowances . It 1040ez   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. It 1040ez    A self-employed person generally has substantial control over arranging business trips. It 1040ez Exception 2 - Outside United States no more than a week. It 1040ez   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. It 1040ez One week means 7 consecutive days. It 1040ez In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. It 1040ez Exception 3 - Less than 25% of time on personal activities. It 1040ez   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. It 1040ez For this purpose, count both the day your trip began and the day it ended. It 1040ez Exception 4 - Vacation not a major consideration. It 1040ez   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. It 1040ez Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on nonbusiness activities, you generally cannot deduct all of your travel expenses. It 1040ez You can only deduct the business portion of your cost of getting to and from your destination. It 1040ez You must allocate the costs between your business and nonbusiness activities to determine your deductible amount. It 1040ez These travel allocation rules are discussed in chapter 1 of Publication 463. It 1040ez You do not have to allocate your travel expense deduction if you meet one of the four exceptions listed earlier under Travel considered entirely for business. It 1040ez In those cases, you can deduct the total cost of getting to and from your destination. It 1040ez Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. It 1040ez If you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. It 1040ez Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. It 1040ez You cannot deduct the travel expenses for your family. It 1040ez If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. It 1040ez Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. It 1040ez You can deduct your travel expenses only if your attendance is connected to your own trade or business. It 1040ez Convention agenda. It 1040ez   The convention agenda or program generally shows the purpose of the convention. It 1040ez You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. It 1040ez The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. It 1040ez Conventions held outside the North American area. It 1040ez    See chapter 1 of Publication 463 for information on conventions held outside the North American area. It 1040ez Entertainment Expenses You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. It 1040ez You can deduct entertainment expenses only if they are both ordinary and necessary (defined earlier in the Introduction ) and meet one of the following tests. It 1040ez Directly-related test. It 1040ez Associated test. It 1040ez Both of these tests are explained in chapter 2 of Publication 463. It 1040ez The amount you can deduct for entertainment expenses may be limited. It 1040ez Generally, you can deduct only 50% of your unreimbursed entertainment expenses. It 1040ez This limit is discussed next. It 1040ez 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. It 1040ez (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. It 1040ez See Individuals subject to “hours of service” limits , later. It 1040ez ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. It 1040ez Figure 26-A summarizes the general rules explained in this section. It 1040ez The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. It 1040ez Included expenses. It 1040ez   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. It 1040ez However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. It 1040ez Application of 50% limit. It 1040ez   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later in this section. It 1040ez   The 50% limit also applies to certain meal and entertainment expenses that are not business related. It 1040ez It applies to meal and entertainment expenses incurred for the production of income, including rental or royalty income. It 1040ez It also applies to the cost of meals included in deductible educational expenses. It 1040ez When to apply the 50% limit. It 1040ez   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. It 1040ez You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this chapter. It 1040ez Example 1. It 1040ez You spend $200 for a business-related meal. It 1040ez If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. It 1040ez Your deduction cannot be more than $45 (. It 1040ez 50 × $90). It 1040ez Example 2. It 1040ez You purchase two tickets to a concert and give them to a client. It 1040ez You purchased the tickets through a ticket agent. It 1040ez You paid $200 for the two tickets, which had a face value of $80 each ($160 total). It 1040ez Your deduction cannot be more than $80 (. It 1040ez 50 × $160). It 1040ez Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. It 1040ez Figure 26-A can help you determine if the 50% limit applies to you. It 1040ez Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. It 1040ez Employee's reimbursed expenses. It 1040ez   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. It 1040ez Accountable plans are discussed later under Reimbursements . It 1040ez Individuals subject to “hours of service” limits. It 1040ez   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. It 1040ez The percentage is 80%. It 1040ez   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. It 1040ez Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. It 1040ez Interstate truck operators and bus drivers who are under Department of Transportation regulations. It 1040ez Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. It 1040ez Certain merchant mariners who are under Coast Guard regulations. It 1040ez Other exceptions. It 1040ez   There are also exceptions for the self-employed, advertising expenses, selling meals or entertainment, and charitable sports events. It 1040ez These are discussed in Publication 463. It 1040ez Figure 26-A. It 1040ez Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. It 1040ez See Exceptions to the 50% Limit . It 1040ez Please click here for the text description of the image. It 1040ez Entertainment expenses: 50% limit What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. It 1040ez Entertainment. It 1040ez    Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. It 1040ez Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; or on hunting, fishing, vacation, and similar trips. It 1040ez A meal as a form of entertainment. It 1040ez   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. It 1040ez A meal expense includes the cost of food, beverages, taxes, and tips for the meal. It 1040ez To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. It 1040ez You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. It 1040ez Separating costs. It 1040ez   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. It 1040ez You must have a reasonable basis for making this allocation. It 1040ez For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. It 1040ez Taking turns paying for meals or entertainment. It 1040ez   If a group of business acquaintances take turns picking up each others' meal or entertainment checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. It 1040ez Lavish or extravagant expenses. It 1040ez   You cannot deduct expenses for entertainment that are lavish or extravagant. It 1040ez An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. It 1040ez Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. It 1040ez Trade association meetings. It 1040ez    You can deduct entertainment expenses that are directly related to, and necessary for, attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. It 1040ez These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. It 1040ez Entertainment tickets. It 1040ez   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. It 1040ez For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. It 1040ez What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. It 1040ez Club dues and membership fees. It 1040ez   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. It 1040ez This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities. It 1040ez   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. It 1040ez You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. It 1040ez Entertainment facilities. It 1040ez   Generally, you cannot deduct any expense for the use of an entertainment facility. It 1040ez This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. It 1040ez   An entertainment facility is any property you own, rent, or use for entertainment. It 1040ez Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. It 1040ez Out-of-pocket expenses. It 1040ez   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. It 1040ez These are not expenses for the use of an entertainment facility. It 1040ez However, these expenses are subject to the directly-related and associated tests and to the 50% Limit discussed earlier. It 1040ez Additional information. It 1040ez   For more information on entertainment expenses, including discussions of the directly-related and associated tests, see chapter 2 of Publication 463. It 1040ez Gift Expenses If you give gifts in the course of your trade or business, you can deduct all or part of the cost. It 1040ez This section explains the limits and rules for deducting the costs of gifts. It 1040ez $25 limit. It 1040ez   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. It 1040ez A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. It 1040ez   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. It 1040ez This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use or benefit. It 1040ez   If you and your spouse both give gifts, both of you are treated as one taxpayer. It 1040ez It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. It 1040ez If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. It 1040ez Incidental costs. It 1040ez   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. It 1040ez   A cost is incidental only if it does not add substantial value to the gift. It 1040ez For example, the cost of customary gift wrapping is an incidental cost. It 1040ez However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. It 1040ez Exceptions. It 1040ez   The following items are not considered gifts for purposes of the $25 limit. It 1040ez An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. It 1040ez Examples include pens, desk sets, and plastic bags and cases. It 1040ez Signs, display racks, or other promotional material to be used on the business premises of the recipient. It 1040ez Gift or entertainment. It 1040ez   Any item that might be considered either a gift or entertainment generally will be considered entertainment. It 1040ez However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. It 1040ez    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. It 1040ez You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. It 1040ez    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. It 1040ez You cannot choose, in this case, to treat the cost of the tickets as a gift expense. It 1040ez Transportation Expenses This section discusses expenses you can deduct for business transportation when you are not traveling away from home as defined earlier under Travel Expenses . It 1040ez These expenses include the cost of transportation by air, rail, bus, taxi, etc. It 1040ez , and the cost of driving and maintaining your car. It 1040ez Transportation expenses include the ordinary and necessary costs of all of the following. It 1040ez Getting from one workplace to another in the course of your business or profession when you are traveling within the area of your tax home. It 1040ez (Tax home is defined earlier under Travel Expenses . It 1040ez ) Visiting clients or customers. It 1040ez Going to a business meeting away from your regular workplace. It 1040ez Getting from your home to a temporary workplace when you have one or more regular places of work. It 1040ez These temporary workplaces can be either within the area of your tax home or outside that area. It 1040ez Transportation expenses do not include expenses you have while traveling away from home overnight. It 1040ez Those expenses are travel expenses, discussed earlier. It 1040ez However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. It 1040ez See Car Expenses , later. It 1040ez Illustration of transportation expenses. It 1040ez    Figure 26-B illustrates the rules for when you can deduct transportation expenses when you have a regular or main job away from your home. It 1040ez You may want to refer to it when deciding whether you can deduct your transportation expenses. It 1040ez Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. It 1040ez However, there are many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for same trade or business, or if you have a home office. It 1040ez Temporary work location. It 1040ez   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. It 1040ez   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. It 1040ez   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. It 1040ez   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. It 1040ez It will not be treated as temporary after the date you determine it will last more than 1 year. It 1040ez   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. It 1040ez You may have deductible travel expenses as discussed earlier in this chapter. It 1040ez No regular place of work. It 1040ez   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. It 1040ez   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. It 1040ez   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. It 1040ez These are nondeductible commuting expenses. It 1040ez Two places of work. It 1040ez   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. It 1040ez However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. It 1040ez   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. It 1040ez You cannot deduct them. It 1040ez Armed Forces reservists. It 1040ez   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. It 1040ez You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work , earlier. It 1040ez   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. It 1040ez In this case, your transportation generally is a nondeductible commuting expense. It 1040ez However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. It 1040ez   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. It 1040ez   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. It 1040ez These expenses are discussed earlier under Travel Expenses . It 1040ez   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to income rather than as an itemized deduction. It 1040ez See Armed Forces reservists traveling more than 100 miles from home under Special Rules, later. It 1040ez Commuting expenses. It 1040ez   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. It 1040ez These costs are personal commuting expenses. It 1040ez You cannot deduct commuting expenses no matter how far your home is from your regular place of work. It 1040ez You cannot deduct commuting expenses even if you work during the commuting trip. It 1040ez Example. It 1040ez You sometimes use your cell phone to make business calls while commuting to and from work. It 1040ez Sometimes business associates ride with you to and from work, and you have a business discussion in the car. It 1040ez These activities do not change the trip from personal to business. It 1040ez You cannot deduct your commuting expenses. It 1040ez Parking fees. It 1040ez   Fees you pay to park your car at your place of business are nondeductible commuting expenses. It 1040ez You can, however, deduct business-related parking fees when visiting a customer or client. It 1040ez Advertising display on car. It 1040ez   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. It 1040ez If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. It 1040ez Car pools. It 1040ez   You cannot deduct the cost of using your car in a nonprofit car pool. It 1040ez Do not include payments you receive from the passengers in your income. It 1040ez These payments are considered reimbursements of your expenses. It 1040ez However, if you operate a car pool for a profit, you must include payments from passengers in your income. It 1040ez You can then deduct your car expenses (using the rules in this chapter). It 1040ez Hauling tools or instruments. It 1040ez   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. It 1040ez However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). It 1040ez Union members' trips from a union hall. It 1040ez   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. It 1040ez Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. It 1040ez Office in the home. It 1040ez   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. It 1040ez (See chapter 28 for information on determining if your home office qualifies as a principal place of business. It 1040ez ) Figure 26-B. It 1040ez When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. It 1040ez (Do not use this chart if your home is your principal place of business. It 1040ez See Office in the home . It 1040ez ) Please click here for the text description of the image. It 1040ez Figure 26-B. It 1040ez Local Transportation Examples of deductible transportation. It 1040ez   The following examples show when you can deduct transportation expenses based on the location of your work and your home. It 1040ez Example 1. It 1040ez You regularly work in an office in the city where you live. It 1040ez Your employer sends you to a 1-week training session at a different office in the same city. It 1040ez You travel directly from your home to the training location and return each day. It 1040ez You can deduct the cost of your daily round-trip transportation between your home and the training location. It 1040ez Example 2. It 1040ez Your principal place of business is in your home. It 1040ez You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. It 1040ez Example 3. It 1040ez You have no regular office, and you do not have an office in your home. It 1040ez In this case, the location of your first business contact inside the metropolitan area is considered your office. It 1040ez Transportation expenses between your home and this first contact are nondeductible commuting expenses. It 1040ez Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. It 1040ez While you cannot deduct the costs of these first and last trips, you can deduct the costs of going from one client or customer to another. It 1040ez With no regular or home office, the costs of travel between two or more business contacts in a metropolitan area are deductible while the costs of travel between the home to (and from) business contacts are not deductible. It 1040ez Car Expenses If you use your car for business purposes, you may be able to deduct car expenses. It 1040ez You generally can use one of the two following methods to figure your deductible expenses. It 1040ez Standard mileage rate. It 1040ez Actual car expenses. It 1040ez If you use actual car expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. It 1040ez See Leasing a car under Actual Car Expenses, later. It 1040ez In this chapter, “car” includes a van, pickup, or panel truck. It 1040ez Rural mail carriers. It 1040ez   If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as the amount of your allowable expense. It 1040ez Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement in your income. It 1040ez   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). It 1040ez You must complete Form 2106 and attach it to your Form 1040. It 1040ez   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. It 1040ez It is given as an equipment maintenance allowance (EMA) to employees of the U. It 1040ez S. It 1040ez Postal Service. It 1040ez It is at the rate contained in the 1991 collective bargaining agreement. It 1040ez Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. It 1040ez See your employer for information on your reimbursement. It 1040ez If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. It 1040ez Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. It 1040ez For 2013, the standard mileage rate for business use is 56½ cents per mile. It 1040ez If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year, but see Parking fees and tolls, later. It 1040ez You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. It 1040ez See Reimbursements under How To Report, later. It 1040ez Choosing the standard mileage rate. It 1040ez   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. It 1040ez Then in later years, you can choose to use either the standard mileage rate or actual expenses. It 1040ez   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. It 1040ez   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. It 1040ez You cannot revoke the choice. It 1040ez However, in a later year, you can switch from the standard mileage rate to the actual expenses method. It 1040ez If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. It 1040ez Example. It 1040ez Larry is an employee who occasionally uses his own car for business purposes. It 1040ez He purchased the car in 2011, but he did not claim any unreimburse